Do you teach your children about money?

Colin Ainscough

Research has shown that how we manage money around our children is influential on how our children will handle their finances later in life.

Children can start learning about money from their early years. It’s important that parents teach their children important money management skills from a young age so that they can make wise financial decisions when they reach adult hood.

Last year, the charity Citizens Advice warned that unsecured borrowing is exploding among young adults, which ultimately could leave young people in debt for many years. If our children have a clear understanding of how to manage money from a young age it can hopefully help them avoid debt in the future.

Use the guides below to start teaching your children how to handle money:

3-10 years

Lesson: How Money Works: Earning & Spending.

Teach children the concept of earning and spending to help them understand the difference between wants and needs.

How to teach it:

Step 1: Offer your children an allowance but to earn it they have to complete a set of household chores. This could be as simple as putting away their toys when they’ve finished with them.

Step 2: Let your children spend their allowance on what they wish and allow them to make mistakes in order to learn from the consequences.

Lesson: The Importance of Saving

Help your children to understand that if there is something they want that costs more than their allowance, they will need to save for it.

How to teach it:

Step 1: Take your children shopping and show them one lower priced and one higher priced toy. Explain that in order to buy the more expensive item they will have to save their allowance for a few weeks.

Step 2: Once you know what your child wants to save for, figure out how many weeks it will take for them to save that amount and make a goal chart. You can represent each week with a box and your child can mark it off once the money from that week’s allowance is saved.

11-16 years

Lesson: How to Get More for Your Money

Help children to understand that you can get more for your money if you invest it in the right places.

How to teach it:

Step 1: Teach children to read up on, research and compare products and pricing before buying in order to get the best deal on a product, and to make their money go further. This can apply to opening their first savings account.

Step 2: Explain the concept of interest and that when saving more into an investment plan it allows their savings to grow faster. You should describe the different types investment plans to ensure they choose one that best suits their long-term goals.

Lesson: How to Budget Finances

Learning how to budget will ensure that your children have enough money for the things they need, the things that are important to them, and also help them to avoid debt.

How to teach it:

Step 1: Give your child three piggy banks; one for spending, one for short-term savings and one for long-term savings. Encourage them to save by giving them non-monetary rewards and praising them on how well they are doing.

Step 2: Consider beginning to include them in your own household budget to give them an understanding of how money is distributed.

17-21 years

Lesson: How to save for a mortgage

32% of parents want their children to use the savings for a housing deposit, therefore it is important that children understand how a mortgage works.

How to teach it:

Step 1: Explain that they will need a deposit for a mortgage and investing into something like an ISA has historically produced better returns than saving over the long-term. Help them to understand that savings is the act of putting money away in a safe place with the intention of using the money in the future, whereas investing involves committing money into an investment plan in the hopes of making a financial gain. However, investing involves a greater risk as there is no guarantee that they’ll get all of their money back if investment conditions are poor.

Step 2: Help your children to book a holiday with their friends. They will need to put down a deposit and later pay off the whole amount, either in bulk or smaller instalments – similar to a mortgage.

Lesson: How credit works

To avoid debt, it is important that your children understand credit before ‘fleeing the nest’.

How to teach it:

Step 1: If your child wants to buy their first car, for example, you can lend your child the money to make the purchase and agree on a fair interest rate. Then, your child could pay off their debt over the following months.

Step 2: To help them get used to the terms of credit, suggest that they use a credit card for their petrol only, and that they pay it off at the end of each month. Remind them to budget for this and make them aware of the consequences of not paying it off, e.g. a bad credit rating.